What is the nature of Bitcoin?

December 28, 2017

This year Bitcoin became really popular than many people are asking me what Bitcoin and Blockchain could be used for. It sounds really interesting because after they were introduced 9 years ago, no one really knows how to apply Blockchain. Why so?

First of all Blockchain is just yet another technology and the expectation of public is that it brings something new and revolutionary comparing to any other existing technology. So what is it? In simple words Blockchain is a (new) type of database and Bitcoin is a ledger saved to this database.

In our days it’s hard to find an enterprise which do not store ledgers in a database and many of them exchange data from these ledgers with each other. Many of them do this on regular basis and exchange process is automated. Lots of vendors supply software and consulting services to make it possible. How can Blockchain change this industry?

There is a significant difference between Blockchain and any other existing database management system. Before Blockchain the major feature of any database was performance. We expected that data should be stored into database quickly and queries to be executed as fast as possible in order to process more data during fixed period of time. Good databse software was thrifty which allowed to use less powerful and cheaper servers and save on electricity costs which reduce cost of ownership. But Blockchain is a completely different case. It is designed to consume as much computation power as possible because it is the way to make if difficult to counterfeit database content.

I have recognize the idea to make the price of falsification unreasonable is interesting indeed. However this idea is not new.

When, about 1800, the new industry began to create a type of man – the industrial worker – more criminally inclined than traditional types, France hastened to create a numerous police force. Towards 1810 there occurs in England, for the same reasons, an increase in criminality, and the English suddenly realise that they have no police. The Conservatives are in power. What will they do? Will they establish a police force? Nothing of the kind. They prefer to put up with crime, as well as they can. “People are content to let disorder alone, considering it the price they pay for liberty.”

José Ortega y Gasset, The Revolt of the Masses, 1930

So “crypto enforcement” is not for free, same as law enforcement. It sill make sense to use crypto-enforcement in drug-dealing because there is no space for police in this business, but the value it brings to legitimate business is modest.